Watch Those Customer Purchase Orders – They Could Get You into Trouble!

If someone asks you to boycott Israel, did you know that you have an affirmative obligation under the U.S. regulations to report it? And did you know that this standard can also apply to the template language on a customer’s purchase order?

Recently, Pratt & Whitney Component Solutions (“PWCS”) found this out the hard way, with a BIS enforcement action that resulted in PWCS paying a settlement of $48,750. The offensive remark? Standard language on an airline purchase order! This illustrates how important it is to look carefully at each purchase order you receive.

Most Americans know that the U.S. anti-boycott rules forbid a U.S. person from participating in a foreign boycott that is inconsistent with U.S. policy. The rule most often arises in the context of boycotts against Israel.

The reporting requirement of the anti-boycott rule requires U.S. persons to report to the government when they get a request to take any “action which has the effect of furthering or supporting a restrictive trade practice or boycott fostered or imposed by a foreign country against a country friendly to the United States or against any United States person.” The Unites States has explicitly stated that failure to report such boycott-related requests in the manner prescribed may constitute a violation of the export regulations.

In the recent PWCS case, the United States claimed that Qatar Airways had stated:

“Please note that parts made in Israel is prohibited to to be imported into State of Qatar and such shipments will be held up in customs.”

This language appeared on purchase orders from Qatar Airways. This was described as a boycott request that must be reported under the anti-boycott reporting requirements. The charging document described it as a “request … to take an action which would have the effect of furthering or supporting a restrictive trade practice or unsanctioned foreign boycott.”

A United States person may comply or agree to comply with the customer’s national import requirements, but the reporting obligation still remains.

Example

Distributor X, receives an order from ZZ airlines which is located in country Z. Country Z has a boycott against Country B. The import laws of Z prohibit the import of goods produced or manufactured in Country B. Country B is protected by the U.S. anti-boycott rule. In filling this type of order, Distributor X would usually include some component parts produced in Country B.

For the purpose of filling this order, Distributor X may substitute comparable component parts in place of parts produced in Country B, because the import laws of Country Z prohibit the import of goods manufactured in Country B. For example, there may be alternatives replacement parts available that are made in a different country than the OEM parts.

However, Distributor X may not furnish negative certifications regarding the origin of components in response to import and shipping document requirements (e.g. Distributor X cannot certify that the parts did not come from Country B).

Reporting

Your duty to report arises even if you refuse the language (e.g. if you strike it out of a contract. Even when you refuse to participate, you still have a reporting duty. If you receive a communication that must be reported, then you should submit your report by mail or electronically through the BIS website.

Mailed paper reports must be submitted in duplicate to: Report Processing Staff, Office of Antiboycott Compliance, U.S. Department of Commerce, Room 6098, Washington, DC 20230. You should use Form BIS–621P (for single transactions) Form BIS–6051P (to report multiple transactions).

Electronic reports may be submitted through the Office of Antiboycott Compliance Web page.

Reports must be made by the last day of the month following the calendar quarter in which the request was received (e.g., April 30 for the quarter consisting of January, February, and March). There is a one month extension granted to US persons who are located outside the United States (e.g., May 31 for the quarter consisting of January, February, and March).